Optimal Incentive Schemes for Altruistic Providers

We study the optimal design of incentive schemes in the presence of adverse selection and altruistic providers. We assume that providers differ in efficiency, are partially altruistic, and have limited liability. Three types of separating equilibrium emerge. (1) For low levels of altruism the quantity of the efficient and inefficient types is distorted upwards and downwards, respectively; the inefficient type makes zero profits. (2) For moderate levels of altruism the first best is attained: no distortions and profits are zero. (3) For high levels of altruism the quantity of the inefficient type is distorted upwards, and the quantity of the efficient type is distorted either upwards or downwards; the efficient type makes zero profits. Our main result is that the first best can be obtained for some values of altruism, but not necessarily for the highest values. The purchaser is better off with providers with moderate rather than high altruism.     

Passive Industry Interests in a Large Polity

We seek to explain the puzzle of passive industry interests. Taking the formation decision as given, we focus on the ability of a political action committee (PAC) to elicit voluntary donations for campaign giving. We show that, when the number of stakeholders is large and uncertain, PACs behave counteractively. That is, a single PAC that does not oppose the government's prior preference raises resources whenever an opponent poses a credible threat to secure policy favors. By implication money never actually changes hands, prompting the suggestion that counteractive behavior may lie behind the well‐documented, and consistently low, levels of PAC disbursements.